Does Public Scrutiny on Corporate Tax Decisions Affect Directors? Effects of Responsible (Irresponsible) Corporate Tax Practices on Director Reputation

39 Pages Posted: 29 Jul 2022 Last revised: 24 Aug 2022

See all articles by Chun Keung (Stan) Hoi

Chun Keung (Stan) Hoi

Rochester Institute of Technology (RIT) - Department of Accounting and Finance

Yun Ke

University of Texas at El Paso - Department of Accounting & Information Systems

Qiang Wu

Hong Kong Polytechnic University - School of Accounting and Finance

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business

Date Written: July 16, 2022

Abstract

In 2004, the Citizens of Tax Justice (CTJ) released a report that significantly raised public awareness of corporate tax avoidance practices in the companies that it scrutinized in the study. Using a six-year period straddling the CTJ event, we compare over time changes in external board seats held by incumbent directors serving scrutinized firms against those of their counterparts serving control firms with comparable tax practices but that were not scrutinized in the CTJ study. Incumbent directors in scrutinized firms with minimal tax avoidance practices gained more external board seats after the CTJ event than did board members in control firms. However, directors in scrutinized firms with aggressive tax avoidance practices neither gained nor lost more external board seats after the CTJ event than did directors in control firms. These findings provide little evidence that constituents in the corporate sector overwhelmingly favor tax minimization practices as acceptable practices of conducting business operations. Rather, they provide evidence that corporate constituents, like their social peers, are somewhat attuned to the expectation for socially responsible tax practices.

Keywords: Corporate tax avoidance; news media coverage; director reputation; corporate social responsibility; social norm; labor market for directors

JEL Classification: H26; J10; L14; M41

Suggested Citation

Hoi, Chun Keung (Stan) and Ke, Yun and Wu, Qiang and Zhang, Hao, Does Public Scrutiny on Corporate Tax Decisions Affect Directors? Effects of Responsible (Irresponsible) Corporate Tax Practices on Director Reputation (July 16, 2022). Available at SSRN: https://ssrn.com/abstract=3255696 or http://dx.doi.org/10.2139/ssrn.3255696

Chun Keung (Stan) Hoi

Rochester Institute of Technology (RIT) - Department of Accounting and Finance ( email )

Saunders College of Business
105 Lomb Memorial Drive
Rochester, NY 14623-5608
United States
585-475-2718 (Phone)
585-475-6920 (Fax)

Yun Ke

University of Texas at El Paso - Department of Accounting & Information Systems ( email )

University Library - Acquisitions Department
500 West University Avenue
El Paso, TX 79968
United States

Qiang Wu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong
5182095596 (Phone)

Hao Zhang (Contact Author)

Rochester Institute of Technology (RIT) - Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

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